Intel Corporation's (Nasdaq: INTC) acquisition of the Infiniband operations of Qlogic Corporation (Nasdaq: QLGC) for $125 million, sent the share price of rival Infiniband Mellanox Technologies Ltd. (Nasdaq:MLNX; TASE:MLNX) into a tailspin yesterday, falling 3.4% on the TASE to NIS 119.20, and 6.8% on Nasdaq to $31.35, giving a market cap of $1.23 billion.
On one hand, the acquisition strengthened the contention of Mellanox chairman, president and CEO Eyal Waldman that Inifiband technology is the best mainstream solution for high-speed connectivity between an enterprise's computer resources, but the acquisition also created a major new rival. Mellanox has had unchallenged dominance in the Infiniband market, with an 83% share, according to Dell'Oro. Steifel Nicolaus & Co. estimates that the company 85% of the market.
Mellanox tried to calm the markets yesterday. Its director of investor relations Janine Zanelli said yesterday, "This is a great testimonial of the market recognition and the adoption of InfiniBand as a major requirement in the HPC, data center, financial services, database, Web 2.0, storage and cloud markets."
She added, "Intel was one of the founding members of InfiniBand and originally developed InfiniBand silicon in the early 2000’s. Since then, Intel acquired NetEffect for RDMA over Ethernet, and Fulcrum for Ethernet switch silicon solutions. A source from Intel previously claimed that the strong traction of InfiniBand has enabled up to 40% of Intel's enterprise shipments. Because of this momentum, we believe Intel is investing into InfiniBand’s future and acknowledges its importance as the premiere interconnect to service the rising data center application performance needs.
"We look forward to working closely with Intel to continue to drive InfiniBand and RoCE (RDMA over Converged Ethernet) into the market."
Analysts covering Mellanox are equivocal about the news. Clal Finance Brokerage analyst Jonathan Kreizman said, "In the long term, the effect on Mellanox could be positive." He reiterated his $40 target price for the share, a 30% premium after yesterday's fall.
In contrast, Harel Finance analyst Rami Rosen and Barclays Capital analyst Joseph Wolf believe that the acquisition will pose a long-term challenge for Mellanox. Neither analyst revised his recommendation for the share or target price.
Wunderlich Securities analyst Brian Freed said, "These two companies dominate the market and Mellanox always had a significant lead on QLogic. Three years from now, this track record of dominating the market may change to a company that could potentially be chasing Intel.”
Oracle Corporation (Nasdaq: ORCL), the world’s second-largest software maker, owns a stake in Mellanox, which might help offset Intel's entry into the Inifiband market. Kreizman cautions, however, “Oracle’s soft results are a troubling sign."
Published by Globes [online], Israel business news - www.globes-online.com - on January 24, 2012
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